R-95

OFFICE OF 

## THE ATTORNEY 

# GENERAL

PRICE DANIEL ATTORNEY

GENERAL March 10, 1947

Honorable Paul B. Drown Secretary of State Austin, Texas Opinion NO. v-81

Re: Whether certain foreign securities "registered"with the Securities and Exchange Commission of theUnited States are 'on the list approved by the Securities and Exchange Commission",as contemplatedby subdivlsion (b) of Sec. 23, of the Texas Securities Act, and therefore exempt from the

Dear Sip: provisions of the Act.

You request advice as follows:
"Subdivision (b) of Section 23 of the Texas SecuritiesAct, under exemptions,provides as follows:
"'Any security Issued OP guaranteedby any foreign governmentwith which theUnited States is at the time of the sale, or offer of sale thereof,maintaining diplomatic relations, OP by any State, province OF political subdivisionthereofhaving the power of taxation or assessment,which security is recognized at the time it is offered for sale in this State as valid obligationby suah foreign government OP by such State, province,
or political subdivision thereof issuing the same,providedhowever, that such securities must be on the list approvedby the Securities and Bchange Commission of theUnited States.'

"Wehave had severalrequests for information In regard to possible exemptionsunderHon. Paul I-i. Brown, page 2 -v-81

this provision. The trouble seems to be that the Securitiesand Exchange Commission does not approve an issuebut simply registers the same. It would appear that the Legislaturehad in mind sn actual approvalby this Commissionbefore an exemption could be claimed. In the registration of these Issuesby the Securitiesand Exchange Commission they always state that this shouldnot be consideredas an approval.

"The question is, shallwe consider
a security,which meets all other requirements of'this-exemptionas exemptwhen the
same is simplyregisteredwith the Securities anrf.

Exchange Commissionand not approved.

The authority and duties of the Securities end Exchange Commission as they pertain to the type of securities inquired about are set out in Title 15, Chapter 2A of the United States Code Annotated. As we construe the provisions of Chapter 2A, the Conznisslon has
no authority OP duty to 'approve"any of the securities inquired about. We have also directed an Inquiry to the Chief Counsel, CorporationsFinance Division, Securities and Exchange Commission,requesting confirmation of
our constructionof the Federal Act. The reply received by this office is to the effect that the Commission does not and has not approved, nor has it been authorized to approve any such securities since the creation of the Commission.

The only authority granted the Commissionby Federal law, in this connection, Is to allow securities to be "registered'upon applicationby the issuer after submissionby,the issuer of extensivedata disclosing matters of Interest to Investorsas required by the Act. Apparently, the only decision required of the Commission is a determination that the application contains the data required by law. Ho authority or duty is placed upon the Commissionby the Federal act topass upon the investment merits of the securities so "registered ,nor upon whether OP not the securitieshave investment value.

On the otherhand, the Texas SecuritiesAct, which is published as Art. 600a of Vernon's Civil Statutes of Texas, contemplatesa determinationhy the Secretary of.

1

Eon. Paul H. Brown, page 3 - v-81

State that "theplan of business of the applicant appears to be fair, just and equitable,and that the secuPitieswhich it proposes to issue and the method to be used by it in issuing and disposing of the same ar8 not su% as will work a fraud upon the purchasers thereof. This determination is made in the form Of a "finding". Without a permit, the sale of such securitiesis unlavful. Th8 issuance of the permit contemplateddepends upon a favorable "finding". See Sections 8 and 9 of the Securities Act.

It Will be noted that the word "approved" Is also used in paragraph (f) of Sec. 23 ofArt. 600a, which exempts securitieslisted on recognized and responsible stock exchanges,which exchangeshave been I'approved"

by the Secretary of State. Such approval under paragraph (f) is conditioned that the exchanges supply to the Secretary OS State facts and data which "shallb8 found to establish:

'I* * *

"(2) That the governing constitution, by-laws, and/or regulations of such exchanges shallrequire:
"* * *

"3rd. Securities listed and traded in
on such 8XChange to be restricted to those of ascertained, sound asset and/or income value."
Thus, consistentwith the scheme of the Act, the "approval"under paragraph (f) contemplatesmore than a mere disclosure of true facts as a condition precedent to engaging in the issuance and Sale of securities in Texas. As a safeguardto the investor, it contemplates that qualificationsbe imposed on the issuer tending to guarantee value. And 'appPovaln appears to mean that ,theSecsy of State has ascertained that the saf8gtIards exist.

It thus appears that "approval"as used in the Texas seCUPiti8SAct means more than "registration" under the Federal Act, and no reason appear8 tOnoonstrue val" "registration"tomean the same thing as appPoor to hold that a list of registered securities isHon. Paul H. Brown, page 4 -v-81

a 'list approved"b the Conmtission within the meaning of subdivision9 b) of Sec. 23 of the Texas Securitie8 Act.
Since the Securities and Exchange Commission could haV8 been given powers by Congress of a nature leading to an approval substantially similar to that contemplatedby the Texas Act, and since suchmay yet be done by Congress at its pleasure, it is our opinion that the exemption contained In paragraph (b) of Section 23 of the Texas SecuritiesAct is and will remain inoperativeuntil actual approvalby the Securities and Exchange Conaaission of such securitiesis authorized or required by Congressional enactment.

Certain foreign securities "registered" with the Securities and Exchange COnunissiOn of theUnited States are not "on the list approvedby the Securitiesand Exchange Commission" as contemplatedby the exemption contained in subdivision (b) of Section 23 of the Texas SecuritiesAct. (Art. 60Oa, V.C.S.)
Very truly yours
ATTORREX GENERAL OF TEXAS

NM:rt;djm BY N&d McDaniel Assistant